Are FICC markets ‘effective and fair’?

The Fair and Effective Markets Review (FEMR) has today published a consultation document (available on the Bank of England website), on what needs to be done to reinforce confidence in the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets.

The Review was established by the Chancellor in June 2014, to conduct a comprehensive and forward-looking assessment of the way wholesale financial markets operate, to help to restore trust in those markets in the wake of a number of recent high-profile abuses, and to influence the international debate on trading practices.

To have lasting impact, the Review intends to focus its final recommendations on a core range of high priority actions. To inform that process, this consultation uses a six-part framework to assess the most critical sources of vulnerability and identify the potential solutions from both structural and conduct perspectives:

Structural:  market microstructure; competition and market discipline; and benchmarks.
Conduct :  standards of market practices; responsibilities, governance and incentives; and surveillance and penalties.

Within this framework, the Review is seeking to assess:

  • the areas where fairness and effectiveness are currently deficient;
  • the extent to which ongoing regulatory, organisational and technological change that has taken place since the financial crisis is likely to address these deficiencies;  and
  • what further steps are needed to help ensure fair and effective FICC markets.

The Review proposes to define effective and fair FICC markets as follows:

‘effective’ markets: enabling market participants to trade at competitive prices; and allow the ultimate end-users to undertake investment, funding, risk transfer and other transactions in a predictable fashion, underpinned by robust infrastructure.

‘fair’ markets: Have clear and consistently applied standards of market practice; demonstrate sufficient transparency and open access (either directly or through an open, competitive and well-regulated system of intermediation); allow market participants to compete on the basis of merit; and provide confidence that participants will behave with integrity

Responses are sought by Friday 30 January 2015.

The paper is available here, summary of questions is in section 6 on page 50

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